Pound Strengthens Against Dollar After U.K. Retail Sales Data

The pound advanced for the first time in three days against the dollar as a report showed an index of U.K. retail sales rose to a four-month high in October.

Ten-year government bonds fell as the Debt Management Office sold 1.5 billion pounds ($2.4 billion) of three-year gilts. Sterling dropped 0.5 percent in the past two days versus the U.S. currency amid speculation the Bank of England would boost stimulus measures after policy maker Charles Bean said the economy has been “bumping along the bottom.” A report last week showed U.K. gross domestic product expanded 1 percent in the third quarter, emerging from a double-dip recession.

“The GDP number was strong enough to rule out further monetary stimulus at the November BOE meeting and some of that is in the price for sterling already,” said Valentin Marinov, head of European Group-of-10 foreign-exchange strategy at Citigroup Inc. in London. “More resilience from upcoming U.K. data releases would help sterling consolidate.”

The pound gained 0.3 percent to $1.6081 at 4:19 p.m. London time after falling to $1.5914 on Oct. 23, the lowest level since Sept. 6. Sterling weakened 0.2 percent to 80.66 pence per euro.

The gauge of annual retail-sales growth increased to 30 from 6 in September, the London-based Confederation of British Industry said in a report today. Data tomorrow will show U.K. consumer confidence held at minus 28 in October after rising to a 15-month high in September, according to the median estimate of 19 economists in a Bloomberg survey.

Quantitative Easing

Bank of England policy makers, led by Governor Mervyn King, voted 9-0 to maintain their asset-purchase target, or quantitative easing, at 375 billion pounds on Oct. 3-4, according to minutes of the meeting released on Oct. 17.

Royal Bank of Scotland Plc, Barclays Plc and Citigroup Inc. have all switched their view on further quantitative easing in the U.K. in the past week and no longer expect the Bank of England to expand stimulus at its next policy meeting on Nov. 8.

An index based on a survey of purchasing managers will show the U.K. manufacturing sector shrank in October when the data is released on Nov. 1, according to the median forecast of 27 economists in a Bloomberg News survey.

The pound gained 1.6 percent this year according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The euro dropped 2.1 percent and the dollar fell 2.2 percent.

Gilts Fall

Benchmark 10-year gilt yields rose three basis points, or 0.03 percentage point, to 1.82 percent after falling to 1.79 percent yesterday, the least since Oct. 16. The 1.75 percent bond maturing in September 2022 dropped 0.22, or 2.20 pounds per 1,000-pound face amount, to 99.34.

The Debt Management Office sold 4.75 percent gilts maturing in September 2015 at an average yield of 0.304 percent. Investors bid for 2.11 times the amount of securities allotted.

The U.K. last sold three-year gilts on May 19, 2011, at an average yield of 1.456 percent.

The euro has so-called support around 80 pence from the 55- day moving average and so-called resistance at 81.10 pence, its 200-day moving average, Michael Hewson, a markets analyst at CMC Markets Plc, wrote in an e-mailed note today.

Resistance refers to an area where technical analysts anticipate sell orders to be clustered. Support is where they expect buy orders to be grouped.

Gilts returned 3 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds gained 3.2 percent and U.S. Treasuries earned 1.9 percent.

To contact the reporter on this story: Neal Armstrong in London at narmstrong8@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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